Data Storage Corp 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Index to the Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB Firm ID 0089) F-2 Consolidated Balance Sheets as of December 31, 2025, and 2024 F-3 Consolidated Statements of Operations for the Years Ended December 31, 2025, and 2024 F-4 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2025, and 2024 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2025, and 2024 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2025, and 2024 F-7 Notes to Consolidated Financial Statements F-8 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Data Storage Corporation and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Data Storage Corporation and Subsidiaries (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters. /s/ Rosenberg Rich Baker Berman, P.A. We have served as the Company’s auditor since 2008. New York , New York April 14, 2026 89 F- 2 DATA STORAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2025 December 31, 2024 ASSETS Current Assets: Cash and cash equivalents $ 1,989,354 $ 1,070,097 Accounts receivable, net of allowance for expected credit losses of $648 and $767 in 2025 and 2024, respectively 34,605 59,018 Escrow funds receivable 1,500,000 — Marketable securities 39,004,124 11,261,006 Prepaid expenses and other current assets 98,843 118,538 Current assets of discontinued operations — 2,907,404 Total current assets 42,626,926 15,416,063 Property and equipment, net 16,866 6,077 Other long-term assets 378,682 137,077 Non-current assets of discontinued operations — 9,720,998 Total assets $ 43,022,474 $ 25,280,215 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable and accrued expenses $ 842,473 $ 588,590 Payable to purchaser of discontinued operations 15,889 — Income taxes payable 1,166,315 — Current liabilities of discontinued operations — 2,957,559 Total current liabilities 2,024,677 3,546,149 Deferred tax liability - non-current 312,334 39,031 Non-current liabilities of discontinued operations — 523,070 Total long-term liabilities 312,334 562,101 Total liabilities 2,337,011 4,108,250 Commitments and contingencies (Note 8) Stockholders’ equity: Preferred stock, par value $ 0.001 ; 10,000,000 shares authorized; 0 shares issued and outstanding at December 31, 2025 and 2024 — — Common stock, par value $ 0.001 ; 250,000,000 shares authorized; 7,792,267 and 7,045,108 shares issued and outstanding at December 31, 2025 and 2024, respectively 7,793 7,045 Additional paid-in capital 40,706,616 40,417,813 Retained earnings (accumulated deficit) 222,111 ( 18,982,589 ) Accumulated other comprehensive loss ( 14,235 ) ( 23,214 ) Total Data Storage Corporation stockholders’ equity 40,922,285 21,419,055 Non-controlling interest in consolidated subsidiary ( 236,822 ) ( 247,090 ) Total stockholders’ equity 40,685,463 21,171,965 Total liabilities and stockholders’ equity $ 43,022,474 $ 25,280,215 The accompanying notes are an integral part of these consolidated Financial Statements. F- 3 DATA STORAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2025 2024 Sales $ 1,382,929 $ 1,219,247 Cost of sales 768,605 691,998 Gross profit 614,324 527,249 Selling, general and administrative 4,188,026 3,840,368 Loss from operations ( 3,573,702 ) ( 3,313,119 ) Interest income 850,371 592,819 Loss from continuing operations before income taxes ( 2,723,331 ) ( 2,720,300 ) (Benefit) provision for income taxes ( 1,857,136 ) 39,031 Loss from continuing operations, net of tax ( 866,195 ) ( 2,759,331 ) (Loss) income from discontinued operations, net of tax ( 37,518 ) 3,272,403 Gain on sale of discontinued operation, net of tax 20,118,681 — Income from discontinued operations, net of tax 20,081,163 3,272,403 Net income 19,214,968 513,072 (Income) loss in non-controlling interest of consolidated subsidiary ( 10,268 ) 10,142 Net income attributable to common stockholders $ 19,204,700 $ 523,214 Loss per share from continuing operations – basic $ ( 0.12 ) $ ( 0.40 ) Loss per share from continuing operations – diluted $ ( 0.12 ) $ ( 0.40 ) Earnings per share from discontinued operations – basic $ 2.76 $ 0.47 Earnings per share from discontinued operations – diluted $ 2.76 $ 0.47 Earnings per share attributable to common stockholders – basic $ 2.64 $ 0.08 Earnings per share attributable to common stockholders – diluted $ 2.64 $ 0.08 Weighted average number of shares – basic 7,273,110 6,931,399 Weighted average number of shares – diluted 7,273,110 6,931,399 The accompanying notes are an integral part of these consolidated Financial Statements. F- 4 DATA STORAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year ended December 31, 2025 2024 Net income $ 19,214,968 $ 513,072 Other comprehensive income (loss): Foreign currency translation adjustment 8,979 ( 23,214 ) Other comprehensive income (loss) 8,979 ( 23,214 ) Comprehensive income $ 19,223,947 $ 489,858 The accompanying notes are an integral part of these consolidated Financial Statements. F- 5 DATA STORAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2025, AND 2024 Preferred Stock Common Stock Additional Paid-in Retained Earnings (Accumulated Accumulated other comprehensive Non- Controlling Total Stockholders’ Shares Amount Shares Amount Capital Deficit) income (loss) Interest Equity Balance January 1, 2024 — $ — 6,880,460 $ 6,881 39,490,285 $ ( 19,505,803 ) $ — $ ( 236,948 ) $ 19,754,415 Stock options exercised — — 65,832 65 132,940 — — — 133,005 Stock-based compensation — — 98,816 99 794,588 — — — 794,687 Other comprehensive loss — — — — — — ( 23,214 ) — ( 23,214 ) Net income (loss) — — — — — 523,214 — ( 10,142 ) 513,072 Balance, December 31, 2024 — — 7,045,108 7,045 40,417,813 ( 18,982,589 ) ( 23,214 ) ( 247,090 ) 21,171,965 Stock options exercised — — 411,540 412 957,585 — — — 957,997 Stock-based compensation — — 335,619 336 1,596,587 — — — 1,596,923 Reclassification of warrant to liability — — — — ( 2,461,663 ) — — — ( 2,461,663 ) Reclassification of warrant liability to equity — — — — 196,294 — — — 196,294 Other comprehensive income — — — — — — 8,979 — 8,979 Net income — — — — — 19,204,700 — 10,268 19,214,968 Balance, December 31, 2025 — $ — 7,792,267 $ 7,793 $ 40,706,616 $ 222,111 $ ( 14,235 ) $ ( 236,822 ) $ 40,685,463 The accompanying notes are an integral part of these consolidated Financial Statements. F- 6 DATA STORAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2025 2024 Cash Flows from Operating Activities: Loss from continuing operations, net of tax $ ( 866,195 ) $ ( 2,759,331 ) Net income from discontinued operations, net of tax 20,081,163 3,272,403 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Gain on sale of discontinued operations, net of tax ( 20,118,681 ) — Depreciation and amortization 5,235 1,623 Stock based compensation 1,005,830 499,000 Deferred taxes 273,303 39,031 Provision for credit losses 6,512 601 Changes in Assets and Liabilities: Accounts receivable 17,901 ( 29,467 ) Prepaid expenses and other assets 83,697 ( 24,617 ) Accounts payable and accrued expenses 238,242 618 Income taxes payable ( 2,130,439 ) — Changes in assets and liabilities of discontinued operations ( 1,758,932 ) 740,228 Net cash (used in) provided by operating activities ( 3,162,364 ) 1,740,089 Cash Flows from Investing Activities: Capital expenditures ( 16,024 ) ( 2,149 ) Net proceeds from sale of discontinued operation 35,566,460 — Purchase of marketable securities ( 38,918,636 ) ( 842,810 ) Sale of marketable securities 11,175,518 900,000 Equity investment ( 100,000 ) — Cash used in investing activities of discontinued operations ( 787,129 ) ( 1,798,215 ) Net cash provided by (used in) investing activities 6,920,189 ( 1,743,174 ) Cash Flows from Financing Activities: Cash settlement of warrants ( 2,049,388 ) — Costs paid in connection with tender offer and other ( 205,607 ) — Proceeds from stock option exercises 957,997 133,005 Cash used in financing activities of discontinued operations ( 51,520 ) ( 485,962 ) Net cash used in financing activities ( 1,348,518 ) ( 352,957 ) Effect of exchange rates on cash 9,950 ( 2,591 ) Increase (decrease) in cash and cash equivalents 2,419,257 ( 358,633 ) Cash and cash equivalents, beginning of year 1,070,097 1,428,730 Cash and cash equivalents, end of year 3,489,354 1,070,097 Reconciliation to consolidated balance sheets: Cash and cash equivalents 1,989,354 1,070,097 Escrow funds receivable 1,500,000 — Cash, cash equivalents, and restricted cash 3,489,354 1,070,097 Supplemental cash flow disclosures: Cash paid for interest $ — $ 23,549 Cash paid for income taxes $ 3,965,587 $ — Non-cash investing and financing activities: Reclassification of warrants from equity to liability $ 2,461,663 $ — Tender offer costs included in accounts payable and accrued expenses $ 70,575 $ — Assets acquired by operating lease related to discontinued operations $ — $ 647,958 The accompanying notes are an integral part of these consolidated Financial Statements. F- 7 DATA STORAGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2025 Note 1 – Basis of Presentation, Organization and Other Matters Headquartered in New York, NY, Data Storage Corporation (“DSC” or the “Company”) is focused on strategic investments and supporting businesses in high-growth technology sectors, including, but not limited to, GPU IaaS, AI-driven software applications, cybersecurity and telecommunications. On July 11, 2025, the Company entered into a definitive agreement to sell its cloud solutions business, comprised of substantially all of the assets held by CloudFirst Technologies Corporation (the “Cloud Solutions Business”). The sale was approved by shareholders on September 10, 2025, and the transaction officially closed on September 11, 2025. As described in Note 3, the Cloud Solutions Business has been classified as a discontinued operation. The Company’s continuing operations consist of the operations of its Nexxis Inc. (“Nexxis”) subsidiary, which provides voice and data telecommunications solutions. Unless otherwise noted, the following footnotes pertain to the Company’s continuing operations. Note 2 – Summary of Significant Accounting Policies Principles of Consolidation The Consolidated Financial Statements include the accounts of the Company and its subsidiaries, consisting of (i) Information Technology Acquisition Corporation, a Delaware corporation; and (ii) its majority-owned subsidiary, Nexxis Inc., a Nevada corporation. All intercompany transactions and balances have been eliminated in consolidation. On September 11, 2025, the Company completed the sale of its Cloud Solutions Business, which consisted of the operations of the Company’s subsidiaries, CloudFirst Technologies Corporation and CloudFirst Europe Ltd. The operating results of these businesses have been reclassified as discontinued operations for all periods presented. Segment Reporting Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. In evaluating operating segments, the Company considers: its internal organizational structure; the availability of separate financial information; and the criteria used by the Company’s CODM, its Chief Executive Officer, to evaluate performance. The Company has determined that it operates in one operating segment and one reportable segment, as the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. Recently Issued and Newly Adopted Accounting Standards In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires annual disclosure of specific categories in the tax rate reconciliation and provides additional information for reconciling items that meet a quantitative threshold. The new requirements are effective for annual periods beginning after December 15, 2024. The guidance has been applied on a prospective basis with the option to apply the standard retrospectively. The Company adopted ASU 2023-09 for the year ended December 31, 2025 on a prospective basis. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. In November 2024, the FASB issued ASU 2024-03, Income Statement (Topic 220): Reporting Comprehensive Income - Expense Disaggregation Disclosures, Disaggregation of Income Statement Expenses, which requires public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the financial statements. Subsequently, in January 2025, the FASB issued ASU 2025-01, which clarified the effective date of ASU 2024-03. The amendments in this pronouncement will be effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and is effective on either a prospective basis or retrospective basis. The Company is currently assessing the potential impacts of adoption on its financial statements. F- 8 In May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity. This ASU provides guidance for determining the accounting acquirer in a business combination involving a variable interest entity. The amendments are effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU on its consolidated financial statements but does not expect it to have a material impact upon adoption. In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (“Topic 326”), which provides all entities with a practical expedient to assume that current conditions as of the balance sheet date do not change for the remaining life of current accounts receivable and contract assets. The guidance is effective for annual periods beginning after December 15, 2025 and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company will adopt ASU 2025-05 effective January 1, 2026. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements. In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which revises the recognition guidance for internal-use software by eliminating the previous model based on software development stages and introducing a principles-based approach. The guidance is effective for annual periods beginning after December 15, 2027 and interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Estimated Fair Value of Financial Instruments Assets and liabilities recognized or disclosed at fair value in the financial statements are categorized based upon the level of judgment associated with the inputs used to measure their respective fair values. The fair value measurement disclosures are grouped into three levels based on valuation factors: ● Level 1 – quoted prices in active markets for identical investments ● Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs) ● Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments) The Company’s marketable securities are classified as within Level 1 of the fair value hierarchy. Management believes the estimated fair value of these accounts at December 31, 2025, approximates their carrying value as reflected in the balance sheets due to the short-term nature of these instruments. F- 9 Level 3 fair value measurements are derived from valuation techniques that include significant inputs that are not based on observable market data. When required, the Company uses discounted and undiscounted cash flow models to determine the fair value of certain assets and liabilities. These models rely on unobservable inputs, which reflect management’s own assumptions about the factors that market participants would use in pricing the asset or liability, and are significant to the overall fair value measurement. During the year ended December 31, 2025, the Company recognized a warrant liability associated with Common Stock Purchase Warrants issued by the Company on July 21, 2021 which were valued using Level 3 inputs (See Note 5). As of December 31, 2025 and 2024, the Company does not have assets and liabilities valued using Level 2 or Level 3 inputs. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis The Company measures property and equipment at fair value on a non-recurring basis in periods after initial measurement in circumstances when the fair value of such assets are impaired below their recorded cost. As of December 31, 2025 and 2024, there were no material non-financial assets recorded at fair value. Cash and Cash Equivalents The Company considers all short-term, highly liquid investments that are readily convertible to known amounts of cash and that are purchased with original maturities of three months or less to be cash equivalents. Marketable Securities Marketable securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized gains and losses recognized in earnings. The following table sets forth a summary of the changes in marketable securities: Schedule of changes in equity investments measured at fair value For the years ended December 31, 2025, and 2024 As of January 1, 2024 $ 11,318,196 Purchases 842,810 Sales ( 900,000 ) As of December 31, 2024 11,261,006 Purchases 38,918,636 Sales ( 11,175,518 ) As of December 31, 2025 $ 39,004,124 Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments and assets subjecting the Company to concentration of credit risk consist primarily of cash, marketable securities and trade accounts receivable. The Company’s cash and marketable securities are maintained at major U.S. financial institutions. Deposits in these institutions may exceed the amount of insurance provided on such deposits. The Company’s customers are concentrated in the United States. The Company’s Nexxis subsidiary had four customers that individually accounted for 25 %, 21 %, 15 %, and 10 % of consolidated accounts receivable at December 31, 2025. The Company’s Nexxis Subsidiary had three customers that individually accounted for 18 %, 15 % and 14 % of consolidated accounts receivable at December 31, 2024. No customer accounted for more than 10% of sales for the year ended December 31, 2025. One customer accounted for 16% of sales for the year ended December 31, 2024. F- 10 Accounts Receivable and Allowance for Credit Losses Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. The allowance is assessed by applying a historical loss-rate methodology in accordance with ASC Topic 326, Financial Instruments— Credit Losses , adjusted as necessary based on the Company's review of accounts receivable, specifically reviewing factors including the age of the balances, customer payment history, creditworthiness, and other factors. Due to the monthly subscription nature of the services and positive collection history, this allowance has not been material. Property and Equipment Property and equipment, which consists primarily of office and computer equipment, are recorded at cost and depreciated over their estimated useful lives using the straight-line method. The estimated useful lives for this equipment are generally five to seven years. Additions, betterments, and replacements are capitalized, while expenditures for repairs and maintenance are charged to operations when incurred. As units of property are sold or retired, the related cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income. Deferred Offering Costs Costs that are directly associated with equity financings are capitalized until such financings are consummated, at which time such costs are recorded against the gross proceeds or cash payments of the offering, depending on the nature of the financing. Should an in-process equity financing be abandoned, the deferred offering costs are expensed immediately as a charge to operating expenses in the consolidated statements of operations. Discontinued Operations The Company reports financial results for discontinued operations separately from continuing operations on the face of the financial statements and for disclosures in the notes. Discontinued operations reporting occurs only when the disposal of a component or a group of components represents a strategic shift that will have a major effect on the Company’s operations and financial results. Refer to Note 3, “Discontinued Operations,” for further information regarding the Company’s discontinued operations. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. As of December 31, 2025, and 2024, the Company had a net deferred tax liability of $ 312,334 and $ 39,031 , respectively. The Company’s policy is to recognize, when applicable, interest and penalties on uncertain tax positions as part of income tax expense, and to record unrecognized tax benefits as noncurrent liabilities. Per FASB ASC 740-10, disclosure is not required of an uncertain tax position unless it is considered probable that a claim will be asserted and there is a more-likely-than-not possibility that the outcome will be unfavorable. Using this guidance, as of December 31, 2025, and 2024, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company’s 2025, 2024, 2023, and 2022 Federal and State tax returns remain subject to examination by their respective taxing authorities. None of the Company’s Federal or State tax returns are currently under examination. Revenue Recognition The Company’s continuing operations derive all revenue from its Nexxis subsidiary, which provides Voice over Internet Protocol (“VoIP”), Internet access, and data transport services. Revenue is recognized when control of the promised services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The Company’s contracts are typically monthly subscription agreements. For these contracts, the Company has a single performance obligation: to provide continuous access to its VoIP, Internet, and/or data transport services over the contract term. This performance obligation is satisfied over time because the customer simultaneously receives and consumes the benefits of the services as they are provided. F- 11 Revenue is recognized ratably over the applicable monthly service period. The Company’s standard payment terms are monthly, and the transaction price is the fixed monthly subscription fee. Because the billing cycle corresponds directly to the service period, the Company does not have significant contract assets or contract liabilities (deferred revenue) at the end of a reporting period. All revenue from continuing operations is transacted in the United States in U.S. dollars. In the following table, revenue is disaggregated by major product category: Schedule of revenue Year Ended December 31, 2025 2024 VoIP services $ 506,101 $ 441,949 Data transport services 796,293 662,025 Other 80,535 115,273 Total revenue $ 1,382,929 $ 1,219,247 Leases The Company determines whether an arrangement contains a lease at the inception of the contract. Right-of-Use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, while lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date, based on the present value of estimated lease payments over the lease term. The lease term includes options to extend the lease when it is reasonably certain that the Company will exercise those options. The Company has elected the practical expedient to exclude leases with terms of 12 months or less from the balance sheet. Lease expense for these short-term leases is recognized on a straight-line basis over the lease term. Variable lease payments that depend on an index or rate are initially measured using the index or rate in effect at the lease commencement date. Other variable payments are recognized in the period in which the obligation is incurred. Following the sales of Cloud Solutions Business on September 11, 2025, the Company has no leases that require the recognition of an ROU asset and lease liability on the Company’s consolidated balance sheets. Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset might not be recoverable. An impairment loss, measured as the amount by which the carrying value exceeds the fair value, is recognized if the carrying amount exceeds estimated un-discounted future cash flows. Advertising Costs The Company expenses the costs associated with advertising as they are incurred. The Company incurred $ 18,512 and $ 31,744 of advertising costs for the years ended December 31, 2025, and 2024, respectively. Stock-Based Compensation The Company follows the requirements of FASB ASC 718, Share-Based Payments with regards to stock-based compensation issued to employees and non-employees. The Company has agreements and arrangements that call for stock to be awarded to employees and consultants at various times as compensation and periodic bonuses. The expense for this stock-based compensation is equal to the fair value of the stock price on the day the stock was awarded multiplied by the number of shares awarded. The Company has a relatively low forfeiture rate of stock-based compensation and forfeitures are recognized as they occur. The valuation methodology used to determine the fair value of options issued during the period is the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including estimated volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of valuation for instruments with a similar expected term. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its Common Stock and does not intend to pay dividends on its Common Stock in the foreseeable future. Estimated volatility is a measure of the amount by which DSC’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s calculation of estimated volatility is based on historical stock prices over a period equal to the expected life of the awards. F- 12 Earnings per Share Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) adjusted for income or loss that would result from the assumed conversion of potential common shares from contracts that may be settled in stock or cash by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The following table sets forth the information needed to compute basic and diluted earnings per share for the years ended December 31, 2025 and 2024: Schedule of earning per share basic and diluted Year Ended December 31, 2025 2024 Weighted average number of common shares - basic 7,273,110 6,931,399 Dilutive securities Options — — Restricted stock units — — Weighted average number of common shares - diluted 7,273,110 6,931,399 The Company reported a loss from continuing operations for the years ended December 31, 2025 and 2024. Therefore, dilutive common shares are not assumed to have been issued since their effect is anti-dilutive for these periods. The following table sets forth the number of potential shares of common stock excluded from net income per share because their effect was antidilutive: Schedule of anti-dilutive shares Year ended December 31, 2025 2024 Options 429,625 568,432 Warrants 1,376,368 2,475,860 Restricted stock units 117,034 146,862 1,923,027 3,191,154 Note 3 – Discontinued Operations On September 11, 2025, the Company completed the sale of its Cloud Solutions Business, which consisted of the operations of the Company’s subsidiaries, CloudFirst Technologies Corporation and CloudFirst Europe Ltd., for a base purchase price of $ 40,000,000 . At closing, the proceeds were contractually adjusted for a $ 1,500,000 escrow deposit and $ 431,537 in net adjustments for estimated closing date debt and working capital, resulting in total cash received at closing of $ 38,068,463 . The transaction remains subject to final post-closing adjustments, which may be settled from the escrowed funds. The operating results of these businesses have been reclassified and presented as “(Loss) income from discontinued operations, net of tax” on the Consolidated Statements of Operations for all periods presented as the sale represented a strategic shift that had a major effect on the Company’s operations and financial results. The sale resulted in the removal of the CloudFirst Technologies Corporation and CloudFirst Europe Ltd. reportable segments. The gain on the sale is presented separately in the Consolidated Statements of Operations, as follows: Schedule of discounted operations Amount Gross cash proceeds received after working capital adjustment $ 38,068,463 Add: Amount placed in Escrow 1,500,000 Less: Carrying value of net assets disposed (1) ( 9,869,738 ) Cash transaction and selling costs (2) ( 2,502,020 ) Warrant liability reclassification (3) 215,981 Total pre-tax gain on sale $ 27,412,686 Income tax expense (4) ( 7,294,005 ) Gain on sale of discontinued operation, net of tax $ 20,118,681 F- 13 (1) Represents the carrying value (book value) of the assets and liabilities of the Cloud Solutions Business on the date of sale. (2) Represents cash selling expenses, including legal and advisory fees, as shown on the Consolidated Statement of Cash Flows. (3) Represents the changes in fair value of the warrant liability as a cost of the transaction (see Note 5). (4) Represents the provision for federal and state income taxes on the gain from the sale. The major classes of assets and liabilities of the Cloud Solutions Business classified as discontinued operations were as follows: Schedule of major classes of assets and liabilities December 31, 2024 ASSETS: Accounts receivable $ 2,166,440 Prepaid and other assets 740,964 Current assets of discontinued operations 2,907,404 Property and equipment, net 3,433,579 Goodwill and intangible assets, net 5,665,677 Right-of-use and other assets 621,742 Total assets of discontinued operations $ 12,628,402 LIABILITIES: Accounts payable and accrued expenses $ 2,594,789 Deferred revenue 212,390 Finance and operating lease liabilities - current 150,380 Current liabilities of discontinued operations 2,957,559 Finance and operating lease liabilities - non-current 523,070 Total liabilities of discontinued operations $ 3,480,629 Operating results for the discontinued operations were as follows: Schedule of Operating results for the discontinued operations January 1, 2025 to Twelve Months Ended September 11, 2025 December 31, 2024 Sales $ 16,039,680 $ 24,152,056 Cost of sales 9,388,216 13,575,938 Gross profit 6,651,464 10,576,118 Selling, general and administrative 6,678,953 7,183,108 (Loss) income from discontinued operations ( 27,489 ) 3,393,010 Interest and other expense ( 41,653 ) ( 120,607 ) Benefit from income taxes 31,624 — (Loss) income from discontinued operations, net of tax $ ( 37,518 ) $ 3,272,403 Summary of Significant Accounting Policies of Discontinued Operations Revenue Recognition The Cloud Solutions Business derived revenue from subscription services for cloud infrastructure and disaster recovery, managed services, and the sale of equipment and software. Subscription revenue was recognized ratably over the contract term. Revenue from equipment and software sales was recognized at a point in time when control transferred to the customer. Goodwill and other intangible assets of the Cloud Solutions Business were tested for impairment annually. Property and equipment, primarily data center assets, were depreciated on a straight-line basis over their estimated useful lives. F- 14 Note 4 – Balance Sheet Components Prepaids and other current assets consist of the following: Schedule of Prepaid and other current assets December 31, December 31, 2025 2024 Prepaid subscriptions and licenses $ 13,702 $ 26,991 Prepaid insurance 67,458 67,373 Other 17,683 24,174 Total prepaids and other current assets $ 98,843 $ 118,538 Other long-term assets consist of the following: Schedule of Other long-term assets December 31, December 31, 2025 2024 Deferred transaction costs $ 228,703 $ 113,167 Investments 100,000 — Other 49,979 23,910 Total other long-term assets $ 378,682 $ 137,077 Note 5 – Stockholders’ Equity Capital Stock The Company has 260,000,000 authorized shares of capital stock, consisting of 250,000,000 shares of Common Stock, par value $ 0.001 , and 10,000,000 shares of Preferred Stock, par value $ 0.001 per share. On July 18, 2024, the Company entered into an Equity Distribution Agreement (the “Agreement”), pursuant to which it may offer and sell, from time to time, shares of its common stock. Sales of shares of common stock under the Agreement will be made pursuant to the Company’s registration statement on Form S-3 (File No. 333-280881) (the “Registration Statement”) and a related prospectus supplement (the “ATM Prospectus”). The ATM Prospectus relates to the offering of up to $ 10,600,000 shares of the Company’s common stock. The issuance and sale, if any, of common stock under the Agreement is subject to the Company maintaining an effective registration statement. The Registration Statement was declared effective on July 26, 2024. The Company did not make any sales under the Agreement, which expired in July 2025. The Company recognized deferred offering costs associated with the Agreement of $ 113,167 at December 31, 2024 which were expensed as a component of selling, general and administrative expenses during the year ended December 31, 2025. The Company is in the process of entering into a new equity distribution agreement which is expected to be executed during the year ended December 31, 2026. During the years ended December 31, 2025 and 2024, employees exercised 411,540 and 68,988 stock options, respectively, into shares of Common Stock. The Company received $ 957,997 and $ 133,005 in proceeds for these option exercises during the years ended December 31, 2025 and 2024, respectively. Stock Incentive Plans On March 8, 2021, the Company’s Board and stockholders owning in excess of 50% of the Company’s outstanding voting securities approved and adopted the 2021 Stock Incentive Plan, as amended and restated (the “2021 Plan”). The 2021 Plan permits the Company to grant stock options, restricted stock units, and other awards at levels determined appropriate by the Company’s Board and/or compensation committee. The 2021 Plan also allows the Company to utilize a broad array of equity incentives and performance cash incentives to secure and retain the services of its employees, directors, and consultants, and to provide long-term incentives that align the interests of its employees, directors and consultants with the interests of the Company’s stockholders. An aggregate of 15,000,000 shares of Company common stock may be issued under the 2021 Plan, subject to equitable adjustment in the event of future stock splits, and other capital changes. As of December 31, 2025, there were 857,291 shares available for future grants under the 2021 Plan. Additionally, there are 6,250 options outstanding and exercisable under the Data Storage Corporation 2010 Incentive Award Plan (the “2010 Plan”) as of December 31, 2025. The 2010 Plan expired on October 21, 2020, and accordingly, there are no shares available for future grants. On July 1, 2024, the Company registered an additional 111,323 and 1,000,000 shares of common stock under the 2010 Plan and 2021 Plan, respectively. F- 15 Common Stock Options A summary of the Company’s stock option activity and related information follows: Schedule of options activity and related information Number of Weighted Weighted Shares Average Average Under Exercise Contractual Options Price Life Options Outstanding at January 1, 2024 595,347 $ 2.79 6.87 Options Granted 163,755 $ 4.36 5.20 Exercised ( 68,988 ) $ 2.24 Expired/Cancelled ( 11,812 ) $ 2.79 Options Outstanding at December 31, 2024 678,302 $ 2.56 6.42 Options Granted 51,420 $ 4.36 5.21 Exercised ( 411,540 ) $ 2.35 Expired/Cancelled ( 94,526 ) $ 4.54 Options Outstanding at December 31, 2025 223,656 $ 3.20 5.03 Options Exercisable at December 31, 2025 223,656 $ 3.20 5.03 Share-based compensation expense recognized for stock options granted totaled $ 507,018 and $ 188,624 for the years ended December 31, 2025, and 2024, respectively. As of December 31, 2025, there was no unrecognized compensation expense related to unvested employee stock options granted under the Company’s share-based compensation plans as all such options are fully vested. The intrinsic value of outstanding stock options as of December 31, 2025, and 2024 was $ 464,820 and $ 1,171,313 , respectively. The valuation methodology used to determine the fair value of stock options issued during the year was the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including the volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of stock options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of valuation for instruments with a similar expected term.. Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s calculation of estimated volatility is based on historical stock prices of the Company’s stock over a period equal to the expected life of the awards. The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the years ended December 31, 2025, and 2024, are set forth in the table below: Schedule of weighted average fair value of options granted 2025 2024 Weighted average fair value of stock options granted $ 4.36 $ 3.69 Risk-free interest rate 4.32 % 3.84 %- 4.33 % Volatility 108.39 % 122 %- 159 % Expected life (years) 5.21 years 3.50 - 6.00 years Dividend yield — % — % Share-based awards, Restricted Stock Units (“RSUs”) and Restricted Stock Awards (“RSAs”) On January 2, 2024, the Company granted certain employees an aggregate of 70,393 RSUs. Compensation as a group amounted to $ 156,251 . The shares vest one third each year for three years after issuance. On March 31, 2024, the Company granted its Board members an aggregate of 14,166 RSUs. Compensation as a group amounted to $ 81,030 . The shares vest one year after issuance. F- 16 On April 1, 2024, the Company granted a nonemployee consultant an aggregate of 2,660 RSAs. Aggregate compensation for the grant was $ 15,002 . The shares vested on the grant date. On January 3, 2025, the Company granted certain employees an aggregate of 11,078 RSUs. Compensation as a group amounted to $ 54,061 . The shares vest one year after issuance. On January 17, 2025, the Company granted certain employees an aggregate of 19,012 RSUs. Compensation as a group amounted to $ 79,375 . The shares vest one third each year for three years after issuance. On January 22, 2025, the Company granted a nonemployee consultant an aggregate of 1,000 RSAs. Aggregate compensation for the grant was $ 4,700 . The shares vested on the grant date. One June 2, 2025 the Company granted certain employees and its Board members an aggregate of 93,993 RSUs. Compensation as a group amounted to $ 356,233 . The shares vest one year after issuance. A summary of the activity related to share-based awards for the year ended December 31, 2025, is presented below: Schedule of activity related to share-based awards Share-based awards (RSUs and RSAs) Shares Fair Value Outstanding non-vested at January 1, 2024 209,159 Granted 104,719 $ 3.98 Vested ( 98,816 ) $ 2.18 Forfeited ( 687 ) Outstanding non-vested at December 31, 2024 214,375 $ 2.79 Granted 125,083 $ 3.95 Vested ( 335,619 ) $ 3.21 Forfeited ( 3,839 ) Outstanding non-vested at December 31, 2025 — $ — Stock-based compensation for share-based awards has been recorded in the consolidated statements of operations and totaled $ 498,812 and $ 310,375 for the years ended December 31, 2025, and 2024, respectively. As a result of the sale of the Company’s Cloud Solutions Business (Note 3) all RSU then-outstanding vested upon closing of the sale on September 11, 2025, therefore as of December 31, 2025, there was no unrecognized compensation expense related to unvested RSUs granted under the Company’s share-based compensation plans. Discontinued Operations Stock-based compensation related to discontinued operations totaled $ 590,757 and $ 295,589 for the years ended December 31, 2025, and 2024, respectively. Common Stock Warrants A summary of the Company’s warrant activity and related information follows: Schedule of warrant activity and related information Schedule of warrant activity and related information Weighted Number of Range of Weighted Average Shares Exercise Price Average Contractual Under Warrants Per Share Exercise Price Life Warrants Outstanding at January 1, 2024 2,415,860 $ 7.43 - 6.15 $ 6.88 2.67 Granted 80,000 $ 7.43 $ 7.43 5.00 Warrants Outstanding at December 31, 2024 2,495,860 $ 7.43 - 6.15 $ 6.90 1.66 Settled for cash (Fundamental Transaction) ( 858,750 ) $ 6.15 $ 6.15 Warrants Outstanding at December 31, 2025 1,637,110 $ 7.43 - 6.15 $ 7.30 0.77 Warrant Exercisable at December 31, 2025 1,637,110 $ 7.43 - 6.15 $ 7.30 0.77 F- 17 The intrinsic value of outstanding warrants as of December 31, 2025 and 2024 was $ 0 . Description of July 2021 Warrants and Fundamental Transaction Included in warrants outstanding as of December 31, 2024 were 1,031,250 Common Stock Purchase Warrants issued by the Company on July 21, 2021 to institutional investors (the “July 2021 Warrants”). The July 2021 Warrants have an exercise price of $6.15 per share, and contained a “Fundamental Transaction” provision stating that upon a merger, change in control, or sale of all or substantially all of the Company’s assets, holders of the July 2021 Warrants could, at their option, require the Company to purchase their July 2021 Warrants by paying such holders a cash payment equal to the Black-Scholes Value (as such term is defined in the July 2021 Warrants) of their July 2021 Warrants (the “Put Right”). The Put Right is only available to holders of the July 2021 Warrants in cases where the Fundamental Transaction is within the Company’s control. In the event a Fundamental Transaction is not within the Company’s control, including not approved by the Company’s Board of Directors, the holders of the July 2021 Warrants would receive the same form of consideration the holders of Company Common Stock receive. On September 11, 2025, the Company completed the sale of its Cloud Solutions Business, which sale was previously approved by the Company’s Board of Directors (see Note 3, “Discontinued Operations”). This transaction constituted a Fundamental Transaction within the Company’s control, which triggered the cash-settlement provision for all outstanding July 2021 Warrants. Prior to September 11, 2025, the July 2021 Warrants were classified as equity, as the warrants did not obligate the Company (conditionally or unconditionally) to repurchase the shares underlying the warrants or issue a variable number of shares, were indexed to the Company’s Common Stock, and met the criteria for classification in equity as defined in ASC 815. The triggering of the cash-settlement provision on September 11, 2025, required the July 2021 Warrants to be reclassified from equity to a liability at their fair value, therefore the Company recognized an initial warrant liability of $2,461,663, with a corresponding decrease to Additional Paid-in Capital. The warrant liability was subject to remeasurement at fair value at each subsequent reporting period, with changes in fair value of $ 215,681 recognized as a component of the Gain on sale of discontinued operation, net of tax for the year ended December 31, 2025. During September and October 2025, the Company completed the final settlement of its outstanding warrant liability. The full liability was extinguished through two actions: ● Cash payments totaling $ 2,049,388 were made to certain holders of July 2021 Warrants to purchase up to 858,750 shares of Common Stock, upon such holders’ exercise of their Put Right and the Company’s purchase of such warrants and cash payment to such holders equal to the Black Sholes Value of their July 2021 Warrants. ● The remaining liability balance of $ 196,294 which related to July 2021 Warrants to purchase up to 172,500 shares of Common Stock was reclassified to Additional Paid-in Capital, as the 30-day period for holders to require the Company to purchase such July 2021 Warrants at the Black Scholes Value expired on October 11, 2025. As of December 31, 2025, there was no remaining liability associated with these warrants. Fair Value Measurement The fair value of the warrant liability is measured using the Black-Scholes-Merton option-pricing model, which requires the use of subjective assumptions. These inputs are considered Level 3 inputs within the fair value hierarchy. The key assumptions used in the Black-Scholes-Merton model to value the outstanding warrant liability as of September 11, 2025, the transaction date, and as of October 11, 2025, the Put Right expiration date, were as follows: Schedule of Black-Scholes-Merton model to value the outstanding warrant liability Assumption October 11, 2025 September 11, 2025 Stock Price $ 4.06 $ 5.15 Exercise Price $ 6.15 $ 6.15 Expected Term (in years) 1.3 years 1.3 years Expected Volatility 90.5 % 107.8 % Risk-Free Interest Rate 3.6 % 3.8 % Expected Dividend Yield 0.0 % 0.0 % ● Expected Term: The expected term represents the remaining contractual life of the warrants. ● Expected Volatility: The expected volatility is based on the historical volatility of the Company’s common stock over a period commensurate with the expected term. For purposes of the September 11, 2025 fair value, the expected volatility represents the calculation of volatility associated with the Put Right, as defined in the July 2021 Warrant. ● Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of valuation for instruments with a similar expected term. ● Expected Dividend Yield: The Company has not paid, and does not anticipate paying, any cash dividends on its common stock. F- 18 Preferred Stock Liquidation preference Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any Common Stock, the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of the Company legally available for distribution to stockholders, for each share of Series A Preferred Stock held by such holder, an amount per share of Series A Preferred Stock equal to the Original Issue Price (as such term is defined in the Certificate of Designations, Preferences and Rights of Series A Preferred Stock of Data Storage Corporation (the “Series A COD”)) for such share of Series A Preferred Stock plus all accrued and unpaid dividends on such share of Series A Preferred Stock as of the date of the Liquidation Event. No shares of Series A Preferred Stock are issued as of December 31, 2025. Conversion The number of shares of Common Stock into which a share of Series A Preferred Stock may be converted shall be the product obtained by dividing the Original Issue Price of such share of Series A Preferred Stock by the then-effective Conversion Price (as defined in the Series A COD) for such share of Series A Preferred Stock. The current Conversion Price for the Series A Preferred Stock is $55.60 and shall be adjusted from time to time. Voting Each holder of shares of Series A Preferred Stock shall be entitled to the number of votes, upon any meeting of the stockholders of the Company (or action taken by written consent in lieu of any such meeting) equal to the number of shares of Common Stock into which such shares of Series A Preferred Stock could be converted. Dividends Each share of Series A Preferred Stock, in preference to the holders of all Common Stock, shall entitle its holder to receive, but only out of funds that are legally available therefore, cash dividends at the rate of ten percent (10%) per annum from the Original Issue Date on the Original Issue Price for such share of Series A Preferred Stock, compounding annually unless paid by the Company. There are no shares of Series A Preferred Stock outstanding as of December 31, 2025 or 2024. Note 6 – Income Taxes The Company adopted ASU 2023-09 for the year ended December 31, 2025 on a prospective basis. A reconciliation between the Company’s effective income tax rate and the federal statutory income tax rate pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows: The components of the Company's (benefit) provision for income taxes were as follows: Schedule of income tax expense benefit Year Ended December 31, 2025 2024 Current: Federal $ ( 1,470,003 ) $ — State ( 660,436 ) — total $ ( 2,130,439 ) $ — Deferred: Federal $ 207,710 $ 29,664 State 65,593 9,367 total $ 273,303 $ 39,031 (Benefit) provision for income tax expense $ ( 1,857,136 ) $ 39,031 Schedule of income tax expense benefit 2025 Federal statutory income tax expense $ ( 571,900 ) 21.0 % State income taxes, net of federal income tax effect (a) ( 163,400 ) 6.0 % Changes in valuation allowance (b) ( 1,052,870 ) 38.7 % Return to provision adjustments ( 68,966 ) 2.5 % Income tax benefit $ ( 1,857,136 ) 68.2 % (a) State taxes in Florida and California made up the majority (greater than 50 percent) of the tax effect in this category. (b) The taxable gain generated from the sale of the discontinued operation (discussed below) provided a source of income, allowing for the realization of these deferred tax assets which previously did not meet the “more likely than not” criteria. F- 19 For comparison purposes, a reconciliation between the Company’s effective income tax rate and the federal statutory income tax rate for the year ended December 31, 2024 is as follows: Schedule of expected income tax expense benefit 2024 U.S. Federal Statutory Rate 21.0 % State Taxes 6.9 % Other permanent and prior period adjustments 5.7 % Valuation allowance ( 33.6 )% Income tax provision — % Discontinued Operations For the year ended December 31, 2025, the Company recorded a pre-tax loss from discontinued operations of $ 69,412 and a related tax benefit of $ 31,624 . Separately, the Company completed the sale of its discontinued operations, resulting in a pre-tax gain of $ 27,412,686 for the year ended December 31, 2025. The Company recorded a provision for federal and state income taxes on this gain of $ 7,294,005 . This gain is treated as a significant, discrete item for tax purposes. The $ 5,131,902 of tax liability is recorded as a component of the “Gain on sale of discontinued operations, net of tax” in the Consolidated Statements of Operations, with $1,166,315 recognized as “Income taxes payable” on the Consolidated Balance Sheet at December 31, 2025. The amount included in Income taxes payable at December 31, 2025 is net of estimated tax payments of $ 3,965,587 made during the second half of 2025. The cash paid for income taxes during the year ended December 31, 2025 was as follows: Schedule of income taxes 2025 Federal $ 3,915,000 State and Local 50,587 Tota cash paid for income taxes $ 3,965,587 The components of deferred taxes are as follows: Schedule of components of deferred taxes Year Ended December 31, 2025 2024 Deferred tax assets: Net operating loss carryforwards $ — $ 2,277,000 Operating lease – Right of use asset — 172,496 Total deferred tax assets — 2,449,496 Deferred tax liabilities: Property and equipment — ( 521,358 ) Intangibles — ( 120,123 ) Goodwill — ( 195,154 ) Lease Liability — ( 158,947 ) Deferred gain ( 312,334 ) — Total deferred tax liabilities ( 312,334 ) ( 995,582 ) Valuation Allowance — ( 1,492,945 ) Net deferred taxes $ ( 312,334 ) $ ( 39,031 ) F- 20 The Company had no remaining net operating tax loss carryforwards as of December 31, 2025. The Company’s prior deferred tax liabilities included amounts related to the difference between the book basis and tax basis of goodwill acquired in a taxable business combination, which is deductible for tax purposes over 15 years. Because this deferred tax liability, also known as a ‘naked credit’, relates to an indefinite-lived intangible asset (goodwill) that was not previously expected to reverse in the foreseeable future, it was not considered a source of taxable income for the purpose of assessing the realization of deferred tax assets. During the year ended December 31, 2025, following the sale of the Cloud Solutions Business, the Company conducted a Section 382 study through October 31, 2025 to assess whether a change or changes of control, as defined in Section 382, have occurred since inception. The Company has determined that it has undergone two ownership changes which potentially limit the use of the Company’s tax attributes. The first ownership change will have no practical impact on the Company since there were no pre-change loss attributes identified in the Section 382 study. The second ownership change created an annual limitation for the 2021 tax year and thereafter. However, the recognition of prior unrealized gains during the year ended December 31, 2025 will substantially expand the limitation for the 2025 tax year. The Company expects these net operating losses to be utilized. Note 7 – Equity Investment On May 21, 2025, the Company invested $ 100,000 in TG-17, Inc. (“TG-17”), a privately held Delaware corporation, in exchange for shares of TG-17 Series CF Preferred Stock. The investment represents less than 20% of the outstanding equity of TG-17 and does not convey board representation, control rights, or any significant influence over the investee’s operating or financial policies. The investment does not have a readily determinable fair value, and accordingly, the Company accounts for the investment using the measurement alternative. Under this method, the investment is recorded at its original cost and is adjusted for any impairment or for observable price changes in orderly transactions for the identical or a similar investment of the same issuer. As of December 31, 2025, the Company has not identified any events or changes in circumstances that would indicate impairment of the investment, nor has it observed any transactions requiring a remeasurement of its carrying value. The investment is classified as a non-current asset as a component of other long-term assets on the Company’s consolidated balance sheet. Note 8 – Commitments and Contingencies Litigation The Company is not currently involved in any litigation that it believes could have a materially adverse effect on its financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of its subsidiaries, threatened against or affecting the Company, its Common Stock, any of its subsidiaries or of the Company’s or its subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. F- 21 Note 9 – Related Party Transactions Nexxis Capital LLC Charles M. Piluso (Chairman and CEO) and Harold Schwartz (President) collectively own 100% of Nexxis Capital LLC (“Nexxis Capital”). Nexxis Capital was formed to purchase equipment and provide leases to Nexxis Inc.’s customers. The Company received funds of $ 3,257 and $ 7,348 during the year ended December 31, 2025, and 2024, respectively. Nexxis Capital was formed to overcome the Nexxis obstacle of supplying financing for Nexxis clients and the relationship was between Nexxis client and Nexxis capital. Eisner & Maglione CPA’s LLC Lawrence Maglione is a partner of Eisner & Maglione CPA’s LLC. The Company paid his firm $ 46,262 and $ 31,352 for accounting and due diligence services during the year ended December 31, 2025, and 2024, respectively. Systems Trading On January 1, 2022, the Company entered into a lease agreement with Systems Trading, Inc. (“Systems Trading”), a technology leasing company established by Harold Schwartz (President), where he currently serves as Chief Executive Officer and President, effective January 1, 2022. This lease obligation was payable to Systems Trading with monthly installments of $ 7,145 and expired on April 1, 2025. The lease carried an interest rate of 8%. On April 1, 2022, the Company entered into a lease agreement with Systems Trading effective May 1, 2022. This lease obligation was payable to Systems Trading with monthly installments of $ 6,667 and expired on February 1, 2025. The lease carried an interest rate of 8%. Other In connection with the vesting of equity awards held by Harold Schwartz (a Director and President), the Company erroneously remitted $47,479 in tax withholding obligations during the fourth quarter of the year ended December 31, 2025, which was later determined to be an overpayment. The related balance reflected in other long-term assets at December 31, 2025 represents amounts settled on his behalf against vested equity compensation and does not represent a personal loan or extension of credit. No such balance existed at December 31, 2024. F- 22 Note 10 – Segment Information Following the sale of its Cloud Solutions Business, which consisted of the operations of the Company’s subsidiaries, CloudFirst Technologies Corporation and CloudFirst Europe Ltd., on September 11, 2025 (see Note 3 for details), the Company operates in one reportable segment: Nexxis, Inc. The CloudFirst Technologies Corporation and CloudFirst Europe Ltd. reportable segments were removed as a result of the sale of the Cloud Solutions Business. The Company’s segment was determined based on its internal organizational structure, the manner in which its operations are managed, and the criteria used by the Company’s CODM which is its Chief Executive Officer, to evaluate performance, which is generally the segment’s operating income or losses. Nexxis, Inc. is a single-source solution provider that delivers fully-managed cloud-based voice over internet services, data transport, internet access, and SD-WAN solutions focused on business continuity for today’s modern business environment. The following tables present certain financial information related to the Company ’ s reportable segment and Corporate: For the year ended December 31, 2025 Nexxis, Inc. Corporate Total Revenue $ 1,382,929 $ — $ 1,382,929 Cost of sales 768,605 — 768,605 Gross profit 614,324 — 614,324 Selling, general and administrative 598,797 3,583,994 4,182,791 Depreciation and amortization 3,905 1,330 5,235 Total operating expenses 602,702 3,585,324 4,188,026 Income (loss) from operations $ 11,622 $ ( 3,585,324 ) $ ( 3,573,702 ) For the year ended December 31, 2024 Nexxis, Inc. Corporate Total Revenue $ 1,219,247 $ — $ 1,219,247 Cost of sales 691,998 — 691,998 Gross profit 527,249 — 527,249 Selling, general and administrative 619,912 3,218,831 3,838,743 Depreciation and amortization 850 775 1,625 Total operating expenses 620,762 3,219,606 3,840,368 Loss from operations $ ( 93,513 ) $ ( 3,219,606 ) $ ( 3,313,119 ) F- 23 Note 11 – Subsequent Events The Company has evaluated events that occurred through the issuance of these financial statements, and determined that there have been no events that have occurred that would require adjustments to the Company’s disclosures in the financial statements other than as set forth below. On December 8, 2025, the Company commenced the tender offer (the “Tender Offer”) to purchase up to 6,192,990 shares of Common Stock, representing approximately 83% of its issued and outstanding shares as of December 1, 2025, at the maximum aggregate purchase price for shares purchased in the Tender Offer of $ 32,203,548 . The Tender Offer expired on January 12, 2026. In accordance with the terms and conditions of the Tender Offer, based on the final count, on January 15, 2026, the Company accepted for purchase 5,625,129 shares of Common Stock at a purchase price of $ 5.20 per share, for an aggregate cost of $ 29,250,971 , excluding fees, any excise taxes, and expenses relating to the Tender Offer. The shares accepted for purchase represent approximately 72.0% of the total number of shares of Common Stock outstanding as of December 8, 2025. Following the Company’s purchase of the tendered shares and payment of the cost of such tendered shares and other related expenses, the Company had 2,167,138 shares of Common Stock outstanding and retained over $10.0 million in cash. On February 9, 2026, the Company’s Board approved the issuance to Charles M. Piluso, the Company’s Chief Executive Officer, of an annual cash bonus for the fiscal year ended December 31, 2025, within the limits set forth in his then current employment agreement for annual cash bonuses, and a discretionary equity award of 160,600 restricted stock units pursuant to the 2021 Plan, which will vest in full on May 20, 2026. On February 13, 2026, the Company entered into an amendment to the existing employment agreement with Charles M. Piluso, which was effective as of January 1, 2026 and among other things, extended the term of the employment agreement for an additional three years. Upon execution of the amended employment agreement by the Company and Mr. Piluso, pursuant to the terms thereof, Mr. Piluso received one-time equity awards pursuant to the 2021 Plan, consisting of 250,000 stock options and 60,000 restricted stock units, which stock options and restricted stock units will vest one-third on each of May 20, 2027, May 20, 2028, and May 20, 2029. On February 13, 2026, the Company entered into an amendment to the existing employment agreement with Chris H. Panagiotakos, the Company’s Chief Financial Officer, which was effective as of January 1, 2026 and among other things, extended the term of the employment agreement for an additional three years. On February 13, 2026, the Company’s Board approved the issuance to Chris H. Panagiotakos, of an annual cash bonus for the fiscal year ended December 31, 2025 within the limits set forth in his then current employment agreement for annual cash bonuses, and a discretionary equity award of stock options to purchase up to 125,000 shares of Common Stock and 60,000 restricted stock units pursuant to the 2021 Plan, which will vest one-third on each of May 20, 2027, May 20, 2028, and May 20, 2029. Note 12 – Restatement of Quarterly Financial Information (Unaudited) Description of Restatement Adjustments In connection with the preparation of the Company’s consolidated financial statements for the year ended December 31, 2025, management identified an error in the prior period's accounting for the reclassification of the July 2021 Warrants. On September 11, 2025, the triggering of a cash-settlement provision required these warrants to be reclassified from equity to a liability at fair value. Management determined that the initial recognition of the $ 2,461,663 warrant liability was incorrectly recorded as a component of Gain on sale of discontinued operations, net of tax, rather than as a reduction to Additional Paid-in Capital. Accordingly, the Company has corrected the prior period financial statements to reflect the initial recognition as a debit to equity, with subsequent changes in the fair value of the liability recognized in the consolidated statements of operations. The following tables reflect the impact of the restatement to the specific line items presented in the Company’s previously reported condensed consolidated financial statements for the periods ended September 30, 2025. The amounts in the “As previously reported” columns are amounts derived from the Company’s previously filed Quarterly Report on Form 10-Q for the period ended September 30, 2025. The amounts in the “Adjustments” columns present the reclassification of warrant to liability impact and related tax effect of the adjustment. The amounts in the “As restated” columns are the updated amounts including the impacts from the restatement. Unaudited Financial Statements The following table presents the impact of the financial statement adjustments on the Company’s previously reported Condensed Consolidated Balance Sheet as of September 30, 2025: F- 24 CONDENSED CONSOLIDATED BALANCE SHEET Schedule of financial statement adjustments September 30, 2025 As previously reported Adjustments As restated LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Warrant liability $ 1,224,838 $ ( 182,488 ) $ 1,042,350 Income taxes payable 5,976,589 13,182 5,989,771 Total current liabilities 8,414,058 ( 183,244 ) 8,230,814 Total liabilities 8,414,058 ( 183,244 ) 8,230,814 Stockholders’ equity: Additional paid-in capital 42,427,313 ( 2,461,663 ) 39,965,650 Accumulated deficit ( 2,912,547 ) 2,644,907 ( 267,640 ) Total Data Storage Corporation stockholders’ equity 39,507,997 183,244 39,691,241 Total stockholders’ equity $ 39,263,632 $ 183,244 $ 39,446,876 F- 25 The following tables present the impact of the financial statement adjustments on the Company’s previously reported Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2025: CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended September 30, 2025 As previously reported Adjustment As restated Provision (benefit) for income taxes $ ( 1,034,683 ) $ 15,006 $ ( 1,019,677 ) Loss from continuing operations, net of tax 129,555 ( 15,006 ) 114,549 Gain on sale of discontinued operation, net of tax 17,471,290 2,659,913 20,131,203 Net income of discontinued operations 16,648,787 2,659,913 19,308,700 Net income 16,778,342 2,644,907 19,423,249 Income (loss) in non-controlling interest of consolidated subsidiary, net of tax ( 66 ) 737 671 Net income attributable to common stockholders $ 16,778,276 $ 2,645,644 $ 19,423,920 Earnings per share from discontinued operations – basic $ 2.28 $ 0.37 $ 2.65 Earnings per share from discontinued operations – diluted $ 2.19 $ 0.35 $ 2.54 Earnings per share attributable to common stockholders – basic $ 2.30 $ 0.36 $ 2.66 Earnings per share attributable to common stockholders – diluted $ 2.20 $ 0.35 $ 2.55 Nine Months Ended September 30, 2025 As previously reported Adjustment As restated Provision (benefit) for income taxes $ ( 1,034,683 ) $ 15,006 $ ( 1,019,677 ) Loss from continuing operations, net of tax ( 1,313,172 ) ( 15,006 ) ( 1,328,178 ) Gain on sale of discontinued operation, net of tax 17,471,290 2,659,913 20,131,203 Net income of discontinued operations 17,385,939 2,659,913 20,045,852 Net income 16,072,767 2,644,907 18,717,674 Income (loss) in non-controlling interest of consolidated subsidiary, net of tax ( 3,462 ) 737 ( 2,725 ) Net income attributable to common stockholders $ 16,069,305 $ 2,645,644 $ 18,714,949 Earnings per share from discontinued operations – basic $ 2.42 $ 0.37 $ 2.79 Earnings per share from discontinued operations – diluted $ 2.32 $ 0.36 $ 2.68 Earnings per share attributable to common stockholders – basic $ 2.24 $ 0.37 $ 2.61 Earnings per share attributable to common stockholders – diluted $ 2.15 $ 0.35 $ 2.50 F- 26 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY The following tables present the impact of the financial statement adjustments on the Company’s previously reported Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2025: For the Three Months Ended September 30, 2025 As previously reported Adjustment As restated Additional Paid-in Capital Reclassification of warrant to liability — ( 2,461,663 ) ( 2,461,663 ) Balance, September 30, 2025 $ 42,427,313 $ ( 2,461,663 ) $ 39,965,650 Accumulated Deficit Net income 16,070,042 3,353,878 19,423,920 Balance, September 30, 2025 $ ( 2,912,547 ) $ 2,644,907 $ ( 267,640 ) Total Stockholders’ Equity Reclassification of warrant to liability — ( 2,461,663 ) ( 2,461,663 ) Net income 16,072,767 3,350,482 19,423,249 Balance, September 30, 2025 $ 39,263,632 $ 183,244 $ 39,446,876 For the Nine Months Ended September 30, 2025 As previously reported Adjustment As restated Additional Paid-in Capital Reclassification of warrant to liability — ( 2,461,663 ) ( 2,461,663 ) Balance, September 30, 2025 $ 42,427,313 $ ( 2,461,663 ) $ 39,965,650 Accumulated Deficit Net income 16,779,013 1,935,936 18,714,949 Balance, September 30, 2025 $ ( 2,912,547 ) $ 2,644,907 $ ( 267,640 ) Total Stockholders’ Equity Reclassification of warrant to liability — ( 2,461,663 ) ( 2,461,663 ) Net income 16,778,342 1,939,332 18,717,674 Balance, September 30, 2025 $ 39,263,632 $ 183,244 $ 39,446,876 F- 27 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS The following table presents the impact of the financial statement adjustments on the Company’s previously reported Condensed Consolidated Statement of Cash Flows for the nine-month period ended September 30, 2025: Nine Months Ended September 30, 2025 As previously reported Adjustment As restated Net income from discontinued operations $ 17,385,939 $ 2,659,913 $ 20,045,852 Adjustments to reconcile net income to net cash used in operating activities: Gain on sale of discontinued operations ( 17,471,290 ) ( 2,659,913 ) ( 20,131,203 ) F- 28 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.